September 19, 2007 San Francisco Chapter

Transcription

1 Optimizing Spreadsheet Controls A Proactive Approach to Sustaining Compliance September 19, 2007

2 Welcome! Today s Facilitators Dannette Roberts Industry Partner Manager Microsoft Corporation Terry Nystrom Senior Vice President, Field Operations Prodiance Corporation 2

3 Agenda! Terminology! Key Spreadsheet Issues! What s at Risk! Types of Spreadsheet Controls! Latest Guidance from Auditors! Steps to Controlling Spreadsheets! Spreadsheet Development Best Practices! Questions & Answers 3

4 Terminology! Spreadsheets generic term for End User Computing (EUC) Tools User Developed Applications (UDA)! Also consider: Access databases Other user designed databases Applications outside the general controls of the Information Technology function 4

5 Key Issues! Uncontrolled spreadsheets present an unacceptable business risk for organizations today! Microsoft and Prodiance recommending a proactive approach to remediation: Risk assessment and evaluation of existing controls Spreadsheet auditing, security and change controls Management of associated electronic evidence Automation and monitoring of key financial processes involving spreadsheets Application of spreadsheet development Best Practices! Benefits include reduced risk of errors in the financial reporting process, increased visibility and control, better productivity 5

6 The Ubiquitous Spreadsheet 92% The number of public companies using spreadsheets for revenue recognition Source: IDC,

7 Research on Spreadsheet Errors Audits of real-world spreadsheets found that...! 94% of audited spreadsheets contained errors! 91% of audited spreadsheets contained at least a 5% error in a bottom line value Source: Sarbanes Oxley: What about All the Spreadsheets? Raymond R. Panko and Nicholas Ordway, University of Hawaii Presented at EuSpRIG 2005 July 7/8, 2005, University of Greenwich, London, UK European Spreadsheet Research Information Group 7

8 Spreadsheet Challenges in Closing-the-Books Day 0 ERP Lack of Confidence & Trust OLAP General Ledger OLAP Reports, Models, Dashboards (all spreadsheets) Annual, Quarterly Reports Loss of Security, Integrity Shared Drives Lack of Traceability Financial Spreadsheets Poor Productivity Consolidation, Reconcile, Reporting Lack of Change Controls? Day 14 CEO, CFO Signoffs Colleague Collaboration, Review Mis-use of Spreadsheets2007 Fall Conference 8

9 Where Does All the Electronic Evidence Go? Inventory & Analysis Reports SOX 404 Control Process Registers Narratives? Audit Work Papers Executive Dashboards GL Reports Meeting Minutes Certifications Forms, Checklists Financial Spreadsheets Policies & Procedures Revenue, Sales Reports Audit Logs 9

10 What s at Risk? Regulatory Compliance SOX 404 efforts require spreadsheet documentation and tighter spreadsheet controls Accuracy of account balances used in Financial Reporting, Financial Planning and Analysis, Operations, and Performance Metrics Operational Analysis metrics and management reporting Knowledge retention and continuity for critical spreadsheets when key employees leave the company Undetected Fraud Lost Earnings Company Reputation & Image 10

11 Auditor Guidance Apply Financial Spreadsheet Controls Change control, testing and acceptance of changes, version control, security and integrity of data, documentation, logic inspection, input/output control, ownership and role, backup and restoration, archiving and expiration Manage All Electronic Evidence Provide a secure repository for all financial compliance information (e.g. spreadsheets, process narratives, control registers, reports, audit logs, action plans, GL reports, change requests, etc.) Automate and Monitor Key Business Processes Utilize workflow solutions to automate/monitor key SOX 404 processes (e.g. 10-K/10-Q, consolidation, reconciliations, monthly compliance checklists, change requests, alert notifications, etc.) 11

12 Spreadsheet Controls External controls consist of: 1. Development controls require that spreadsheets are developed using best practices and are tested and approved prior to deployment into production. 2. Access controls restrict who has access to critical spreadsheets. They also define and control user privileges. 3. Change controls define the process to be followed anytime formula changes or structural changes are made to a critical spreadsheet. They also define the testing and approval process required prior to deploying the modified critical spreadsheet back into the production environment. 4. Segregation of duties requires that duties, roles and responsibilities are defined for development, usage, changes, testing and approving of spreadsheets. 5. Backup and archival requires that spreadsheets be maintained on a secured server that is backedup on a regular basis, with prior versions of critical spreadsheets moved to a secure archive folder to ensure they are not accessed and used in error. 12

13 Spreadsheet Controls Internal controls consist of: 1. Documentation controls require that critical spreadsheets include a documentation worksheet tab. 2. Data security and integrity requires that critical input cells that do not change on a periodic basis are locked to prevent unintentional changes to the data. Also, data validation to control or restrict input into critical cells should be used. 3. Input/output controls require the use of cross checks and balancing to ensure all input data has been accounted for and reflected in the outputs, along with data validation to prevent or highlight potential output errors. 4. Version Controls require standard naming conventions incorporating intelligence with regard to the application, time period and current version of the spreadsheet. 13

14 Steps to Controlling Spreadsheets Define critical spreadsheet population Perform a risk analysis on critical spreadsheets Document and review logic of critical spreadsheets Final Final FINAL! Audit critical spreadsheets for mathematical accuracy Implement access, change and version controls Maintain on-going compliance for all critical spreadsheets Develop a spreadsheet control policy & procedures Conduct training on spreadsheet development best practices 14

15 Define Critical Spreadsheets Critical spreadsheets can be Financial, Analytical or Operational! Financial Support key controls in the financial reporting process Develop journal entry input Support a significant account balance Support regulatory reporting (e.g., tax compliance, industry specific requirements) Provide 10Q - 10K disclosure information! Analytical Relied upon for critical business decisions Forecasting Capital expenditure analysis! Operational Monitor subsidiary systems activity and related controls A/P, A/R, F/A, P/R, Inventory! Critical spreadsheets also include: Spreadsheets that are linked to critical spreadsheets and supply input data Spreadsheets that are the source of manual input data into critical spreadsheets 15

16 Perform Risk Analysis The following criteria should be considered when conducting a critical spreadsheet risk assessment! Dollar amount impacted! Use or application of the spreadsheet Creation of a journal entry from spreadsheet outputs Uploading information into ERP or Legacy system Documentation support for 10Q/10K disclosures! Spreadsheet criticality Size Complexity of formulas Complexity of spreadsheet operations (Look-up tables, macros, Pivot tables, etc. 16

17 Documentation of Critical Spreadsheets All critical spreadsheets must be properly documented! Documentation control typically includes information such as: Spreadsheet file name and path Developer/owner/user of the spreadsheet Purpose, logic and operations of the spreadsheet Data input sources and outputs of the spreadsheet Controls applied to the spreadsheet Lifecycle history of the spreadsheet s development, changes, versions, testing and retirement from production! Documentation control provides the information necessary to ensure: Adherence to spreadsheet controls (especially version and change controls) Understanding and continuity of use in the event of employee turnover 17

18 Audit Critical Spreadsheets Conduct an independent logic review and mathematical Verification! Conduct a walk through of the spreadsheet logic! Validate the logic of complex formulas, Look-up tables, Pivot tables, etc.! Verify the mathematical accuracy of formulas and output values 18

19 Policy & Procedures! Criteria for key vs. non-key spreadsheets! Level of controls to be applied by spreadsheet category! Development controls spreadsheet documentation, spreadsheet testing, etc. 19

20 Solutions Approach

21 Maintain On-going Compliance Manual Controls! Access controls password protection of critical spreadsheet workbooks restrict folders on shared drive and/or edit restriction of critical cells or workbooks! Change controls password protection of worksheets and workbooks with respect to read/write privileges! Version controls adoption of a standard naming convention that enables accurate identification of the most current production version of the spreadsheet! Backup controls Maintain on secured server that is backed-up regularly Automated Controls! Prodiance and Microsoft Spreadsheet Compliance Manager Workflow Spreadsheet IQ Secure Repository 21

22 Spreadsheet Compliance Lifecycle! Monitor key risk indicators! Apply change management! Automate spreadsheet workflows! Track financial close process! Identify & inventory key spreadsheets! Evaluate use & complexity! Analyze key spreadsheets! Asses risk based on criticality and highest value output! Understand dependencies! Document key spreadsheets! Audit key spreadsheets! Apply cell-by-cell audit trails, change control, version control, access control, input control, security, dev. lifecycle, back-up and archival, logic inspection, segregation of duties/roles & procedures, analytics Source: PriceWaterhouseCoopers, The Use of Spreadsheets: Considerations for Section 404 of the Sarbanes-Oxley Act, July 2004.! Document & report logic errors! Determine necessary controls! Remediate errors & control deficiencies! Apply best practices 22

23 Spreadsheet Compliance Technology Document and Records Management Workflow Spreadsheet Analytics Spreadsheet Change Auditing 23

24 Risk-based Spreadsheet Analytics! Spreadsheet Inventory! Spreadsheet Analysis & Diagnostics! Error Checking! Multi-workbook Audit Reports! Cell & Workbook History Reports! Workbook & Cell Dependency Diagrams! Cell Color Schemes! Spreadsheet Documentation 24

25 Inventory & Diagnostic Reports 25

26 Remediation Cell Analysis 26

27 Cell, Worksheet & Workbook Dependencies 27

28 Auditing Changes to Critical Spreadsheets!Configurable cell-bycell auditing of data, formulas, macros! Change Comparison! Range Auditing! Smart Auditing! Cell Protection!Cell Highlighting 28

29 Auditing workbooks - Non-invasive for End Users 29 29

30 Comparing Versions 30

31 Bringing Visibility to Potential Problems Identify Inconsistencies 31

32 Managing Electronic Evidence! Workflow & Document Approval Status! Tracking of Key Performance Indicators (KPIs)! Management & Administrative Reports! Extensive Cell-by-cell, File and System Level Audit Trails 32 32

33 Report Examples 33 33

34 Migrating some or all of Linked Spreadsheets End Users Uncontrolled Spreadsheets Spreadsheet Links Updated via WebDAV This is a HUGE Challenge if done manually Migrate Uncontrolled Spreadsheets into Controlled Environment Automatically Update All Spreadsheet Links to new path during migration End users access to spreadsheets in a secure environment and links update themselves via WebDAV protocol Control Environment 34 34

35 Link Migration Management 35

36 Database Change Control 36

37 Workflow = Automation + Control + Visibility 37

38 Things to Remember Spreadsheet Controls Help Organizations:! Take a proactive approach to reducing the risk of errors in the financial reporting process! Implement a sustainable solution for complying with SOX 404 mandates for spreadsheet use! Improve: Spreadsheet development and use Employee productivity Business processes for closing-the-books (10-K/10-Q, consolidation, reconciliations, change control, etc.) 38

39 Thank You! For more information please contact: Dannette Roberts Industry Partner Manager (510) Terry Nystrom Senior Vice President, Field Operations (866) x261 39